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SAP IT Convergence is About Business Focused Integration

August 15th, 2011 by
SAP IT Convergence for ROI

SAP IT Convergence

The problems with Enterprise SAP IT organizations are they are focused on SAP and IT.  They lose sight of their purpose which is to support and promote the broader objectives of the enterprise.  In an SAP centered IT organization this means your whole existence is about ensuring business benefit, focusing on enterprise goals, strategies, and objectives.

Somewhere between the SAP sales cycle and the SAP go-live the concept of business benefit gets lost and is never found again.  By the time you go live with the SAP application the entire IT organization becomes narrowly focused on the care and feeding of the new system.  Everything is all about the “new” ERP application and the business is left holding an empty bag –, the money is gone but the business now has to struggle through getting their operations stabilized just to continue doing business.

The entire IT organization’s existence must focus on enabling business.

Today’s enterprises will no longer pay the premium prices for SAP or IT organizations which exist in a silo.  To continue with this old way of doing SAP or IT support will turn those internal services into very expensive commodities to be outsourced to the lowest cost provider(s).  If you want to do more than survive, but rather to thrive, you must build a converged SAP or IT organization.  Without IT convergence you can expect budget cuts and more outsourcing pressures.

Research Shows a Business Focus Produces SAP Results Needed for IT Convergence

Successful SAP projects require the management and measurement of expected benefits and the purpose for the project throughout the entire SAP life-cycle (Holland and Light, pg. 1630-1636, 1999).  To gain business benefits from an ERP package like SAP you will need serious discussion of goals, direction, objectives, and what the business software can do in those areas.  After that, coordination of key resources from both business and IT is also required to create business to IT alignment (Willcocks and Sykes, pg. 33-38, 2000).  This business to IT alignment produces some great results but is just the beginning.

[F]irms that invested more heavily in business process redesign and devoted more of their IT resources to increasing customer value (e.g. quality, timeliness, convenience) had greater productivity and business performance (Hitt, Wu, and Zhou, pg. 3, 2004 citing Brynolfsson and Hitt)…   [A 1999 study on] the impact of ERP systems on self-reported company performance based on a survey of 101 US implementers of SAP R/3 packages [showed]… companies reported substantial performance improvement in several areas as a result of their ERP implementation, including their ability to provide information to customers, cycle times, and on-time completion rates (Hitt, Wu, and Zhou, pg. 5-6, 2004).

In the 2004 study just cited they also referenced compiled research by Gattiker and Goodhue (2000) which identified four broad categories of ERP benefits including (1) better information flows, standardization, integration, communication and coordination; (2) centralization of administration activities like, AP, payroll, etc. (i.e. “shared services”); (3) reduced IS maintenance costs and improved ability to deploy new IS functionality; (4) a move to “best business practices” around business processes.

Some of the additional and very interesting findings (Hitt, Wu, and Zhou, pg. 18, 2004) include:

  • Greater sales employee performance
  • Higher profit margins
  • Better return on assets including greater asset utilization
  • Higher inventory turns
  • Greater receivables management (including better “cash to cash” cycles)
  • More revenue generated per unit of input

This is impressive but notice these benefits are nearly all operational business performance results.  They certainly appeal to the CFO and improve market valuation making them meaningful. However, as operational benefits they are nearly all focused on lagging indicators of business success.  Shareholders approve of these results with the valuations of companies who implement ERP systems like SAP being “worth approximately 13% more than their non-adopting counterparts, controlling for assets, time and industry” (Hitt, Wu, and Zhou, pg. 20, 2004).  So implementing SAP has a positive impact on stock values.  While the focus on operational results generally produces good results, a focus on business and marketplace results can produce disruptive results.

Today’s SAP Enterprise Can Realize Even More Through SAP IT Convergence

All of these benefits and gains from roughly a decade ago are not enough today.  While the study from Hitt, Wu, and Zhou (as well as the others reviewed here) showed tremendous benefits for SAP they were based on studies at least 10 years old.

In the last decade the entire global landscape has dramatically changed –, the Internet and the pace of technology change has disrupted every value proposition model relied upon by business.  No area of the enterprise is off limits–, business is in the midst of a global and dynamic transformation of operations, innovation, and customer focus.  To thrive in our modern business era we will all have to move past the IT to business alignment model and push into IT convergence.

Your SAP Enterprise Can No Longer Avoid Full Business to IT Integration (i.e. “Convergence”)

The business benefit focus has been difficult for SAP or IT leaders trying to quantify returns from their investments.  Even though SAP has been at the forefront of addressing this message it is slow to catch on.  Over a year ago I highlighted SAP’s “value delivery” and value focus to implementing their software:

Studies have shown that there is a critical disconnect between projected benefits in business cases for IT investments and actual value achieved, because so many firms focus on going live with a project rather than its value delivery. An SAP / ASUG best-practice survey on the ability to capture the projected benefits of an IT project found that 73% of companies do not quantitatively measure value post-implementation (SAP Executive Insight Series, pg. 7, 2009)…  Critical business benefits for an SAP project require taking a hard look at the enterprise and its goals or direction…  (see A New SAP Implementation Methodology and Implementation Steps).

And while all of this is critical for realizing SAP ROI from your investment there is still more to do.  With this groundwork focusing on the need for business benefit, or measurable ROI, we can take the next step and start to explore full IT convergence around your SAP endeavors.

Next week we will look at some methods to create SAP IT convergence.

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Gattiker, T., and Goodhue, D. Understanding the plant level costs and benefits of ERP: Will the ugly ducking always turn into a swan? In: R. Sprague, Jr. (Ed.), Proceedings of the 33rd Annual Hawaii International Conference on System Sciences ( CD-ROM), Los Alamitos, CA: IEEE Computer Society Press, 2000.

Hitt, L., Wu, D.J., and Zhou, X. ERP Investment: Business Impact and Productivity Measures.  Wharton School at U of P (2004).

Holland, C. and Light, B. Critical Success Factors Model for ERP Implementation.  IEEE Software. May / June (1999).

Willcocks, L. P. and Sykes, R. The Role of the CIO and IT Function in ERP.  Communications of the ACM, Vol. 43, Iss. 4 (2000).




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What are SAP Best Business Practices Anyway

March 7th, 2011 by
Key types and distinctions of SAP Best Business Practices

SAP Best Business Practices

Over the last couple months I’ve seen a few posts developing a debate around the use of software “best business practices.”  The basic takeaway is that if everyone uses the standard delivered “practices” there is no competitive advantage.  While this may be true for many software applications there are two things with SAP which causes this idea to be misleading.

Many of these commentators fail to recognize that SAP refers to different things as “best business practices.”  The key types of SAP best business practices involve the processes included in the SAP software itself– software supported business processes.   Then there is the management and integration practices around software alignment to business — or the whole Business to IT Alignment dynamic which focuses on business value. [FN1]

The posts and comments complaining about “best business practices” I refer to are the ones where the authors complain about software supported business processes.  The common denominator I find in all of these authors’ complaints is they have little or no exposure (let alone experience) with SAP.  Their commentary is a bit misleading because of the depth and breadth of options available to any SAP customer.

SAP Best Business Practices for Business Software Integration

Few of the “best business practice” detractors are aware that SAP best business practices are far more than just the software business processes you put in scope and implement.  SAP’s best business practices include structured decision making and governance around applying software solutions to business (shocking isn’t it!) [FN2].  The whole idea behind these types of “best business practices” are to find ways to gain tangible benefits from the application of technology.  By identifying value based governance and project criteria you can achieve measurable Return on Investment (ROI).

Use of SAP’s Best Practices for Speeding Time to Benefit [FN3]

Best-practice value identification, transformation, and measurement approaches include:

– Incorporation of business case objectives throughout the project lifecycle
– Communication and documentation of process objectives and project success criteria
– Use of both existing and new program-specific financial and operational key performance indicators, based on the business case objectives, to measure project success.

The points above come from the SAP literature.  If you look at what SAP is proposing in those points you will see a company that is encouraging accountability to the business in the implementation and integration of its software.  Unfortunately few of the SAP implementation vendors or partners encourage this type of accountability.

SAP as a business software company spends over $1 BILLION Euros a year on Research and Development (R&D) (or over $1 Billion US).  That is to support both types of “best business practices” and is more than nearly all of SAP’s competitors generate in gross revenue each year [FN4].  Is it any real surprise that most of these complainers do not work with SAP?  Many of them are from competitors.

SAP Software Supported Best Business Practice Process Design and Setup

The SAP software supported best business practice processes generally refers to a broad type of functionality that the application contains.  For example, in the automotive sector, on the materials management side, it means that you have special functionality for JIT (Just in Time) or Forecast schedule agreements.  Along with that it also includes “sequencing” for automotive manufacturers and suppliers to guarantee that components and assemblies are delivered to the production line in exactly the order the OEM manufacturer builds them.  This is industry specific business process functionality.

In that one small example, what is not “understood” by many of the best business practice software process detractors is that there are literally dozens, if not hundreds of individual and granular system setup options for how each step of that process works.  On top of that there are also dozens, if not hundreds of master data points between the vendor, materials, pricing, and other possibilities that directly influence how the steps of that process are carried out.  So in a generic sense you have SAP “best business practices” processes in the form of industry accepted JIT and Forecasting along with automotive specific sequencing.  The details of how you execute that functionality can be finely controlled along the way without custom coding.

Conclusion on SAP Best Practices for Business Processes

The example just provided above is one small processing example of hundreds of processing options, within one single industry vertical.  SAP supports over 20 major industry verticals covering industries as diverse as Chemicals, Public Sector (government), Retail, Pharmaceuticals, Consumer Goods, Healthcare operations, Hi-Tech, Services, Aerospace and Defense, etc.

Even though SAP offers a “best practice” setup library with documentation on system settings to support specific business processes, they are a starting point.  The SAP documentation and resources do not cover all of the fine details of setup that only experience brings.

The ability to finely tailor or “tweak” system settings to meet a particular need or requirement, with hundreds, and in some cases thousands of variations, means that two companies using the exact same functionality can create entirely different processes to support different business strategies.  Together with that you have dozens or even hundreds of master data settings which rely on this system setup to create a virtually unlimited set of options.  And then before building some completely separate, stand-alone application there are user exits (or enhancement points in ECC versions) to program very specific requirements.

In the end an experienced consultant can guide you through the process of making the finely detailed adjustments to handle nearly any requirement with a minimal amount of custom coding.  And that is where true “best business practices” intersect with IT. Combine the right consultants with proper project or task governance and you have an optimal solution for the least Total Cost of Ownership (TCO).  Together with reduced TCO you gain real Return on Investment (ROI) with the application of “best business practices” surrounding good governance to create business solutions with IT (rather than IT solutions for business).

=========================

[FN1] This site focuses more on “best business practices” related to business and technology alignment. There are any number of great resources for the business process related topics so another site would add little benefit.  In fact I’m not sure anyone could compete with SAP’s own “SAP Community Network” (or SCN, http://scn.sap.com ).

[FN2] SAP Executive Insight Series (September 7, 2009).  Accelerate Value Creation: The Virtuous Cycle of Using Technology to Maximize Business Value.  http://www.sdn.sap.com/irj/scn/index?rid=/library/uuid/70fa08b0-cf81-2b10-a396-89d18932fbd0&overridelayout=true (retrieved 4/23/2010).

[FN3] SAP Executive Insight Series, pg. 6, 2009.

[FN4] SAP Annual Report for 2009.  Review of R&D Operations.  http://www.sapannualreport.com/2009/en/annual-report-2009/review-of-operations/research-and-development.html (retrieved 3/05/2011).




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SAP System Vendor Project Success Criteria & Factors 5

November 29th, 2010 by

High Performance SAP ProjectThis is the final post in the series on SAP project shared success criteria.  Doing this entire topic justice has been more of a challenge than I had originally anticipated and at some point I will put it all together in a PDF e-book. 

This series leaves you with a lot to digest but over the years these items generally make up the foundations for a very successful project that is able to transform your business.  This series has been challenging but interesting and I am glad it is complete. 

In a few more weeks I will be coming back around to try to wrap up my series on SAP reimplementation for little more cost than a technical upgrade.  That one turned out to be more challenging than I had originally expected.  Until then, here is the final installment in this series on project success criteria.

No. SAP or ERP Critical Success Factor Company Integrator
5 Experienced SAP consultants   A
7 SAP implementation strategy z A
8 SAP project management A z
9 SAP tools, templates, and resources   A
10 SAP scope development z A
11 SAP scope management A z
12 Strong SAP project and business communication (inward and outward) A z
13 SAP change management A z
15 Sufficient SAP training (user and project team training) A A
16 SAP system vendor and customer trust   A
17 SAP system design decisions z A
18 Amount of custom ABAP or other SAP coding z A
19 Appropriate SAP software configuration (system settings) z A
20 SAP system change control process   A
21 SAP data analysis and conversion A z
22 SAP test planning A z
23 SAP test development z A

Legend

A = Primary Responsibility for the success factor
z = Shared but secondary responsibility for success

21.  SAP Data Analysis and Conversion

One of the major activities of an SAP project is the data analysis and conversion. On many projects there are too many new data requirements or data changes needed after the system goes live.  One way to avoid so many of the data correction in a live production system is to ensure that you have sufficient integration and cutover testing.  We will look at testing in a moment.

The primary responsibility for data conversion is generally on the customer.  Customer primary responsibilities include:

  • Identifying legacy and other data sources
  • Cleaning or scrubbing the data
  • Ensuring the converted data meets business processing requirements
  • Defining sufficient test plans to validate data is properly converted
  • Provide sufficiently skilled employees to work the data
  • Make as many data corrections as possible in legacy systems before conversion
  • Ensure there are sufficient hardware resources available for meaningful data conversion tests

I’ve developed a short list of the common data conversion risks as adapted from the SAP ASAP 7.0 Data Migration and Risk Assessment Template.  That template, provided by SAP, contains a sample issue and risk log, and includes some suggestions on how to manage the following common data conversion risks:

SAP Data Conversion Project Management Risks

  • Improper estimates of data migration effort and activities
  • Client side skills gaps on data migration
  • Deferring data corrections until after go-live
  • Knowledge of and access to data sources
  • Insufficient or incorrect change control processes
  • Insufficient participation from key functional project team members (client and consulting)
  • Improper management of dependencies between functional areas or modules. 

SAP Data Technical Conversion Risks

  • Lack of agreement on system of record, data definitions, standards, transformations, conversion methods, etc.
  • Data migration tool(s) not well defined or settled
  • Hardware sizing and data volume are inconsistent
  • Requiring historical data conversion (rather than using legacy systems for historical purposes)
  • Multiple legacy sources of data for single master record loads in SAP.
  • Data gaps – no corresponding data record for SAP conversion
  • Different data structures between legacy systems and SAP.  For example SAP may have structured hierarchies and the source data may not.
  • Poor data quality – errors, duplicates, inconsistent use of fields

Preparing conversion programs, or more specifically, using SAP’s variety of conversion tools and resources is a vendor responsibility.  Together with that the vendor, who has set up the system with the master data requirements is also responsible for providing data load templates as well.  Further the vendor’s functional consultants must participate in the data conversion design and development activities because they are the ones that set up the system and know the master data requirements better than anyone.  The only exception to this is if you decide to bring in consultants who do knowledge transfer to your implementation team and your own internal team does all of the system setup.

For an overview of the various data transformation methods in an SAP project please see the following post:

Planning For a Smooth SAP Go-Live: Part 2
http://www.r3now.com/planning-for-a-smooth-go-live-part-2

SAP Blueprint Master Data Requirements

As a final note, a system integrator should be able to provide a first pass at basic master data requirements by the end of the Blueprint phase.  In fact your SAP Blueprint should contain a technical blueprint section with significant amounts of detail. 

  • It should include each master data type (Material Master, Vendor, Customer, Routing, Sales or Production BOM, Work Center, Chart of Accounts, Profit Centers, Cost Centers, etc., etc., etc.)
  • And it should include each master data SUB type, using just the Customer Master as an example it should contain the requirements of sub-data types, for example you may need Ship-To Customers, Sold-To Customers, Bill-To Customers, Payers, Agents, Freight Forwarders, Carriers, one-time customers, web shop or online customers, etc.  This type of breakdown and segmentation should be done for every data type so that you know what data conversions are necessary.  And this level of detail MUST be contained in a sufficient blueprint.
  • At the end of the blueprint, to ensure that you have all of the master data requirements covered as well, your system integrator SAP blueprint document should contain the specific details of every transaction data type.  That transactional data requirement will be a key part of the data conversion.  For example using the Material Master and inventory movements SAP provides the blueprint document should contain the specific types of inventory movement transactions you perform.  Simple goods receipts, goods issues to production, goods receipt from consignment stocks, issues to consignment stocks, scrapping, shipping / distribution goods issues, receipt into restricted / quality hold, move into unrestricted from quality hold, transfer from plant to plant, transfer from storage location to storage location, etc., etc., etc.

 If your SAP system integrator Blueprint does NOT have this level of detail then it is not sufficient to set up the system and perform the necessary master data conversion.  Further, if it lacks this level of detail you may want to fire your system integrator and demand a refund of at least part of what they bill.

By having this level of detail at the end of SAP blueprinting (process details, master data details, interface requirements, forms, reports, etc.) you can immediately move into setting up the system. If you lack this level of detail you may find yourself forever in design mode (revisiting normal blueprint requirements) and blowing both the budget and the timeline.

I suggest you add this summary of the type of detail you want by the end of the blueprint phase to your contract.

22.  SAP Test Planning

You will have to determine who needs to perform what testing, when, and where.  Together with that you will also want to use this as an opportunity to get both “power users” and non power users involved in the testing.  This becomes the early part of knowledge transfer as well as user acceptance testing.  Inevitably the additional resources from outside of the project team will discover gaps or items that might need to be addressed. 

The Test Planning responsibility is primarily on you as the SAP customer.  Your primary goal here is to ensure that every process you put in scope is represented in some type of testing script. For example, in your order to cash process you might want test scenarios that include credit processing with and without product returns; third party drop shipping to the customer direct from the vendor; pro-forma invoice processing and then follow-up commercial invoice processing; interfaces to and from various external systems; online order entry processing with and without manual intervention; backorder processing and sourcing from other facilities, etc.  At a high level you will be responsible for ensuring that you cover all of the key processes that need to be tested.

SAP Test Strategy and Testing Approach

  • SAP Test Management
    • Test planning, scheduling, and logistics / coordination
      • Identify users to perform testing
      • Identify who will coordinate testing activities
      • Location and equipment logistics for testing
      • Method for communicating test schedule to participants
      • Test data – common master “data sets” to use for testing.  This is different than the converted data testing.
  • Types of SAP Testing and Methods for Testing (whether manual or automated)
    • Unit testing (single transaction)
    • Business Process testing (unit test strings within the same functional module like SD, MM, PP, FI, CO, etc.)
    • Integration testing (Business Process testing including the integration points with other functional modules)
    • Interface testing
    • Data conversion testing (test the data load programs)
    • Converted data testing (test the converted data at performing various functions)
    • User Acceptance Testing
    • Regression Test
    • Batch Job testing (test batch programs, timing, and sequence)
    • Security Test
    • Performance / volume testing
    • Any positive and negative testing requirements for security or transactions
    • Ad hoc testing of unplanned variations and variants
  • Testing Toolset (various spreadsheets, or automation tools for building and managing the testing process).
  • SAP Test Reporting and Analysis
    • Test Metrics
    • Defect Management

Change Control Process (for an overview and details of the SAP change control process see SAP System Integrator Shared Success Criteria Evaluation 4 which focuses critical success factor on #20 on this list of “System Change Control Process”). 

As for a test script, I have included an example one which is a modified version of the standard options SAP provides as part of the older ASAP methodology.

EXAMPLE SAP TEST SCRIPT with Ad Hoc or Variant Section information.

23.  SAP Test Development

As for test development this is clearly a vendor primary responsibility.  Unless you use SAP’s integrated Solution Manager resources for testing this is probably one of the areas where you will have to rely heavily on your SAP partner. The reason this is primarily a vendor responsibility is that as an SAP customer “you don’t know what you don’t know.” 

Unless you have adopted an approach where you require the implementation vendor to act as pure consultants, where your own project team does all of the system setup, you will not know the detailed testing requirements.  As a result a vendor must be able to walk you through the transaction strings and dependencies.  They must be able to take the entire process-related solution they blueprinted from master data creation through cash processing and any interfaces or manual steps in between. 

Because of time, budget, and limitless possibilities there is only so much testing in a project.  These limitations create a requirement that only a “limited universe” of testing can be accomplished and SAP system integrators will usually require someone to sign off on those limited tests. 

There are a few things to beware of here:

1) When the tests have been “gamed” to support only a successful outcome and not to actually test the solution.

2) When a system integrator pushes back on testing variations that they may not have documented in the “formal” test scripts.

3)  Any vendors who engage in hard push back against additional ad hoc, variant, or converted data testing.  Unfortunately I have seen a couple of the major SAP system integrators KNOWINGLY push trash on their customers.

For a thorough testing program you should always ensure your tests include any of the custom development objects as well as manual processing steps.  For example, a thorough test process must include testing of any outputs (forms), interfaces, enhancements, and reports.  Data conversions should also be tested but may be done separately.  However, one strong word of caution here, once converted data is available, even if you do not do formal testing, be absolutely certain to do as much process testing as possible with the converted data.  Testing with converted data will reveal a number of potential problems that can be corrected or resolved before you go live.




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